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Fortescue remains bullish on iron ore prices

Philip Wen

Fortescue Metals chief executive Nev Power says he is ‘‘more confident than ever’’ in China’s demand for resources, as the iron ore miner reported a 3 per cent increase in production and said it remained on track with its aggressive expansion plans.

Delivering the miner’s quarterly production report, Mr Power said China’s hunger for development would continue to underpin iron ore prices, and echoed the sentiments of Atlas Iron boss Ken Brinsden that the investment community had been too negative and over-estimated the impact the projected sharp increase in iron ore supply would have on prices.

‘‘I don’t see the level of supply that’s been announced coming into the market,’’ Mr Power said. ‘‘It’s very easy to announce all of these projects but much more difficult to get them funded and put infrastructure solutions and so on in place.’’

Rio Tinto, BHP Billiton, Gina Rinehart’s Roy Hill Holdings and a host of smaller miners have all flagged significant production increases in coming years. Fortescue itself will lift its production capacity to 155 million tonnes by the end of the year.

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But Mr Power said Fortescue’s increase in supply of 50 million tonnes this year would push higher-cost producers, including those in China, out of the game and ‘‘keep the market in supply-demand balance’’.

Most analysts believe iron ore prices will settle below $US100 a tonne in the next year as a result of the surge in supply, with others still even more bearish.

As a pure-play iron ore miner, Fortescue is particularly exposed to the rise and fall of the commodity’s price. Iron ore prices have dipped since mid-February as concerns over the health of the mining sector mount, but have held up well in recent days at the $US140 a tonne mark.

Mr Power rejected suggestions that there could be a repeat of last year’s scare, with Fortescue pushed into a precarious financial situation after iron ore prices plummeted to $US86.70 in September last year.

‘‘The circumstances are quite different to what they were last year ... fundamentally we are in a different position to last year,’’ he said.

Having just returned with company founder Andrew Forrest from a visit to China as part of a high-profile business delegation to the Boao Forum, Mr Power said he was not worried by the weakness of recent Chinese economic data.

‘‘While this quarter has attracted some interest because it is 7.7 per cent [growth] compared to the previous quarter of 7.9 per cent ... China is growing extremely well,’’ he told reporters today. ‘‘We’re continuing to sell all tonnes we produce.’’

The company remained tight-lipped over the multi-billion dollar sale of a 40 per cent stake in its rail and port infrastructure assets in the Pilbara, other than to say it was ‘‘progressing well’’.

Chief financial officer Stephen Pearce said a select group of buyers had now been shortlisted, but that the process was confidential.

‘‘What I can say is it is going exactly as we have planned,’’ Mr Pearce said. ‘‘We will announce an outcome when we are in a position to do so.’’

The sale, which analysts tip to attract a price of more than $3 billion, is designed to pay down Fortescue’s debt as it looks to slash gearing levels to its target range of between 30 and 40 per cent.

Fortescue shipped 20.2 million tonnes of ore in the March quarter – 3 per cent higher than the previous quarter – despite cyclonic weather in the Pilbara. Quarterly shipments rose 60 per cent on the same period last year to 20.2 million tonnes.

Fortescue maintained its production and shipping guidance of 82 million to 84 million tonnes for the year.